What trends will the housing market see this winter?
Whether you are a homeowner seeking to refinance, a homebuyer or a renter, expect higher housing costs this winter.
Certain mortgage fees are rising, especially for those with small down payments. Luckily for borrowers, low mortgage rates are still around, but they only have one way to go this year, and that's up.
This isn't the time to wait for a better deal. It's time to act.
It's also time to pay close attention to a number of new mortgage regulations that are being released this year. They will help determine who gets a mortgage in the near future.
Here are five housing trends you should expect to see this winter.
FHA: Stricter requirements and higher fees
Homebuyers with low down payments will pay higher mortgage insurance premiums when they get a Federal Housing Administration mortgage this year.
The FHA says it will increase the annual insurance premium that is added to a borrower's monthly mortgage payments by 0.1 percent. It may sound like a small increase, but this hike is on top of numerous insurance premium raises the FHA has implemented since 2008 as part of its ongoing efforts to shore up the FHA's reserves. Industry observers say there's great potential for much higher increases this year.
FHA borrowers are charged about 1.25 percent of the total balance of their loans per year. Before the financial crisis of 2008, the charge was about 0.5 percent.
Because mortgage rates are extremely low, the added cost might not affect borrowers significantly now. That could change once rates rise, says Janneke Ratcliffe, executive director for the Center for Community Capital at The University of North Carolina at Chapel Hill.
The FHA also is considering tightening certain requirements for borrowers with FICO credit scores between 580 and 620. Among some of the changes, the FHA would increase the down payment requirement and costs for borrowers in high-cost areas borrowing between $625,000 and $729,000.
The clock keeps ticking for rates
Mortgage rates appear to have reached bottom. They can stay low or rise, but don't bet on them falling. Most analysts say they will rise -- probably slowly, until the Federal Reserve decides to stop printing money to invest in mortgage bonds. Then rates could spike overnight.
It's unlikely the Fed will give up on keeping mortgage rates artificially low so early in the year. But refinancers and homebuyers who have not taken advantage of the historically low rates shouldn't waste time, mortgage professionals say.
The Mortgage Bankers Association estimates that the 30-year fixed will rise to about 3.9 percent by the end of the first quarter of the year.
That's still an attractive rate, especially for those who still pay 5 percent or higher on their loans. Those who qualify for a mortgage and are ready to refinance should do so as soon as possible, mortgage professionals say.
"In the long run, locking and closing a loan at these rate levels will forever be a smart decision," says Brett Sinnott, director of secondary marketing at CMG Mortgage Group in San Ramon, Calif.
Rents will keep rising
Rents will continue to climb in many parts of the country, as the number of apartments available for rent shrinks, and demand from renters rises.
U.S. apartment vacancies dropped to an 11-year low of 4.5 percent in the last quarter of 2012, according to real estate research firm Reis. Foreclosures, still-tight mortgage lending requirements and a weak jobs market are contributing to the surge in demand and rental prices.
"A majority of distressed and displaced homeowners would prefer to remain in single-family homes, but it remains difficult for potential buyers to secure mortgages to purchase those homes," says Wally Charnoff, chief executive officer of RentRange, a provider of rental market data and analytics. "As the homeownership rate in the U.S. continues to decline and the rate of distress remains elevated, demand for quality rental properties will continue to grow and bring with it the associated competition that traditionally drives rent increases."
Renewed push for principal reductions
Now that the election is over and the "fiscal cliff" ordeal has been put to bed -- at least partially -- President Barack Obama's administration will likely renew its push to help underwater homeowners. That could result in new refinancing opportunities for homeowners who have not been helped by the numerous refinancing programs that have been created since the financial crisis.
"I wouldn't expect a big shift in administration strategy, but I do think the administration will return to some of the issues they have previously worked on, in particular refinancing, which I would expect to be highest on their agenda," says Julia Gordon, director of housing finance and policy for the Center for American Progress. "I also think they do have an interest in principal reduction and an interest in trying to nominate someone to replace Mr. DeMarco."
Edward DeMarco, the acting director of the Federal Housing Finance Agency, has been a strong opponent and a major obstacle to any programs that involve offering underwater borrowers partial principal forgiveness on loans owned by Fannie Mae and Freddie Mac.
Once DeMarco is replaced, which is expected to be soon, talks involving some type of principal reduction may resume.
New mortgage rules
A series of new mortgage and servicing rules is in the process of being unveiled in early 2013. These rules will reshape the mortgage industry and could affect consumers, for better or worse, once they go into effect.
The mortgage industry has long claimed that many of the rules could restrict lending and the availability of capital, making mortgages much harder to get. Consumer advocates and other industry observers say the announcement of these will actually bring clarity and more certainty to the market, making loans actually easier to get. Many of the rules, which resulted from the Dodd-Frank Wall Street Reform and Consumer Protection Act, have been in the works for about two years.
The main rule released so far requires lenders to verify that a borrower has the ability to repay the loan when getting a mortgage. The rule was designed to protect borrowers from the types of risky loans that led to the housing crash. The regulation had to be crafted with caution so that it wouldn't restrict lending and hurt the housing recovery.
"We got what we thought we were going to get, so I don't expect any dramatic changes for most borrowers," in terms of getting approved for loans, says Anthony Hutchinson, a senior policy representative at the National Association of Realtors.